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United Oil & Gas PLC - Audited Results, Notice of AGM & Shareholder Call

RNS Number : 2943O
United Oil & Gas PLC
29 May 2020
 

 

29 May 2020

 

United Oil & Gas PLC ("United" or the "Company") 

 

Final audited results for the year ended 31 December 2019,

 

Shareholder call and Notice of AGM

 

 

United Oil & Gas Plc, the AIM-listed oil and gas exploration, development and production company, is pleased to announce its audited results for the year ended 31 December 2019.

 

2019 highlights:

·     Successful acquisition of Rockhopper Egypt and its 22% interest in the Abu Sennan concession onshore Egypt 

·    Continued progress in securing the environmental and legal permitting for the Selva gas development project in Italy with the objective of first gas in early 2021

·    Significant profit realised from the divestment of the Crown discovery, following value enhancing input from the United technical team

·    Award of licences in highly prospective area in North Sea in UK 31st Licencing Round 

·    Significant strengthening of the United Executive team and Board with the appointment of David Quirke as Chief Financial Officer

 

Post Year-end:

·    Acquisition of Rockhopper Egypt finalised in February 2020

·    Since the completion of the acquisition, the Abu Sennan asset has performed strongly

The ASH-2 well has continued to outperform expectations, with current gross production from the well remaining above 3,000 bopd. Plans are now in place for further development of the gas at the ASH field, with this project due for completion before the end of 2020

Gas from Al Jahraa was brought onstream in March, adding an average 650 boepd gross, and reducing flaring on the asset

Results from the ES-5 development well, which spudded in February, are expected to be announced shortly

·    All Egyptian production, including new gas supply, has positive operational cashflow even at current low market prices

Low operating costs at Abu Sennan of around $6.5/bbl provide solid operating margins even at low price levels

The Company's pre-payment facility with BP provides downside price protection by effectively hedging 6,600 bbls of oil per month at $60/bbl until September 2022

c.20% of United's net production is gas which is sold under fixed contract that is relatively insensitive to oil-price changes

 

·    Discussions are being initiated with Jamaican Government to agree a path forward for the transformative Walton Morant licence

·    In line with the completion of the Rockhopper acquisition, United has recently completed a strategic review of its licences to ensure optimal use of resources.  Accordingly, the Company will seek to divest non-core assets and maintain a focus on Mediterranean (Italy, Egypt), Jamaican and North Sea assets

·    In response to Covid-19, the Company has proactively moved to defer non-committed capital expenditure and dramatically reduce corporate budgets with savings of $500,000 delivered across the business. In addition, three of the four wells planned for 2020 in Egypt have now been deferred until market conditions improve, providing further net Capex savings of over $2m to United

 

CEO, Brian Larkin, reported:

"I am pleased with the significant progress that the Company has made throughout 2019. At the beginning of the year we outlined our intention to complete a transformative acquisition and to build a full cycle oil and gas company. We have achieved both goals with the Rockhopper acquisition, which has already exceeded expectations. In addition to the continued drilling success on the licence, which has seen production grow rapidly and contribute positive cashflow despite the current pricing environment, we are glad to have built new partnerships with BP and Rockhopper. 

Beyond the Rockhopper deal we have made excellent progress across our portfolio.  We have delivered shareholder value through operations, geological assessment and through acquisition and divestment. 

Covid-19 has caused unprecedented disruption to our world and to our industry. United's management has acted quickly to protect our business and to ensure that our strategy is appropriate to these circumstances. While we are currently adopting a prudent approach, this is with the objective of ensuring that we maintain a pipeline of opportunities for future development and emerge from this challenging time in a position to take advantage of opportunities which may arise."

 

Annual General Meeting

In light of the Coronavirus (COVID-19) pandemic and the UK Government's measures to restrict travel and public gatherings of more than two people who do not live together, it will not be possible to hold the AGM in its usual format. The meeting will be held at 9 Upper Pembroke Street, Dublin 02 KR83, Ireland at 11:00 a.m. on 29 June 2020. This year's AGM will be organised as a closed meeting. Shareholders must not attend the AGM in person and anyone seeking to attend in person will be refused entry. The Company will make arrangements for a quorum to be present to transact the formal business of the meeting as set out in the notice of the AGM.

Extracts from the Annual Report are set out below.  The financial information set out below does not constitute the Company's statutory accounts for the periods ended 31 December 2019 or 31 December 2018 but it is derived from those accounts. Statutory accounts for 31 December 2018 have been delivered to the Registrar of Companies and those for 31 December 2019 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts, their reports were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

 

The Company encourages shareholders to vote on the resolutions or to appoint the Chairman of the AGM as a proxy to vote on their behalf. Shareholders can vote on the resolutions using an online portal, following the procedure below. 

·    Visiting www.shareregistrars.uk.com and following the online instructions. Through the website shareholders will be able to access the Registrars' Portal, on which they will be able to register to be able to vote. For security reasons, registration is a two-stage authentication process. Once registered, shareholders will be able to vote online via the platform.

·    Shareholders can submit their completed Form of Proxy electronically by emailing the same to [email protected]

·    Completing and returning the Form of Proxy to the Company's Registrars, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey GU9 7DR no later than 48 hours before the Annual General Meeting

 

In the event that further disruption to the AGM becomes unavoidable or there are any changes to the current AGM arrangements, the Company will announce any changes to the meeting (such as timing or venue) as soon as reasonably practicably through a Regulatory Information Service and the Company's website.

 

Pursuant to Rule 20 of the AIM Rules for Companies, copies of both the Annual Report and the Notice will shortly be available for inspection at www.uogplc.com

 

Shareholder call

In order to allow shareholders the opportunity to engage with the Company, United will be holding a shareholder call ahead of the AGM. This call will take place on 25 June 2020 at 11.00 a.m. Shareholders are invited to submit questions in advance to [email protected]. The leadership team will give an update on the Company and run through a corporate presentation as well as answering shareholder questions. Dial in details for the call will be posted on the Company's website and via a Regulatory Information Service

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

 

For more information please visit the Company's website at www.uogplc.com or contact: 

 

United Oil & Gas Plc (Company)

 

Brian Larkin, CEO

[email protected]

Beaumont Cornish Limited (Nominated Adviser)

 

Roland Cornish and Felicity Geidt

+44 (0) 20 7628 3396

Optiva Securities Limited (Joint Broker)

 

Christian Dennis

+44 (0) 20 3137 1902

Cenkos Securities Plc (Joint Broker)

 

Joe Nally (Corporate Broking)

Derrick Lee and Pete Lynch

 +44 (0) 20 7397 8900

+44 (0) 131 220 6939

Murray (PR Advisor)

+353 (0) 87 6909735

Joe Heron

[email protected]

 

 

St Brides Partners (Financial PR/IR)

 

Frank Buhagiar 

+44 (0) 207 236 1177

 

 

 

 

Notes to Editors

United Oil & Gas plc (UOG) is an AIM-traded company. United is a rapidly-growing full-cycle oil and gas company with focus on low-risk production and development projects in Egypt, Italy, and the UK, and high-impact exploration in Jamaica.

 

 

 

 

CHAIRMAN'S STATEMENT

FORE THE YEAR ENDED 31 DECEMBER 2019

 

 

Dear shareholders,

 

Introduction

Building on the momentum of 2018, I am pleased to report that in 2019 and early 2020 we have made great strides towards our aim of becoming a full cycle oil and gas company with a strong and diversified portfolio of exploration, development and production assets. This was achieved in the course of another very active period for our small but highly skilled and experienced executive management team and staff.

Strengthening of Executive Team

We were delighted to welcome David Quirke to the executive team as CFO and to the Board in early 2019.  His arrival has enhanced what was an already highly advanced 'deal-making' expertise within the business. David made an immediate impact and played a key role in the acquisition and financing of the Rockhopper Egypt assets discussed below. I am now very pleased that our executive team have the fully complementary skills and experience to allow us to deliver on our strategy and growth potential.

Strategy

Our strategy remains clear: it is focussed on building a full cycle portfolio of low risk production, development and exploration assets (as we now have in Egypt, Italy and the UK) complemented by a few higher risk but high impact exploration opportunities (as we have in Jamaica and are in discussions regarding elsewhere). We are committed to a dynamic approach to portfolio management and see opportunity to deliver value to shareholders through our technical expertise as well as through drilling operations. In pursuit of this strategy we continue to seek opportunities when appropriate, and to sell or withdraw from less fitting or promising assets, or when we can realise an immediate gain. 2019 was a very active year in the pursuit of that strategy as outlined below.

Key activities in 2019

2019 was dominated by the acquisition of Rockhopper Egypt and its 22% interest in the Abu Sennan concession onshore Egypt. Such acquisitions are complicated and involve many hurdles which must be overcome, each with the potential to end the deal. Our management team built and carefully managed relationships with the vendor, licence partners, financing partner, new and existing shareholders and with the Government and regulatory authorities in Egypt. Each of these stakeholders played a role in the process and it was only through the tireless work and considerable skill of our Executive team that this deal was delivered. I am particularly proud that United Oil & Gas Plc ("United" or "Company") secured this asset in the face of competition from larger and longer established bidders. 

The merit of targeting this asset has been conclusively proven since the deal was announced, with a series of positive announcements, significantly enhancing the value of our new asset.  Production at the licence has greatly exceeded expectations and will provide an important revenue source for the future development of our company.

In Italy, throughout 2019 we continued to pursue the various permissions required for our Selva gas development project with the objective of first gas in late 2020, leading to a further significant revenue stream for the company. The approval process was on track during 2019 and into H1 2020 but with the COVID-19 crisis affecting Italy, more seriously than most countries, progress has now inevitably slowed. While disappointing, the delay and associated cost deferral will help sustain our cash reserves in the current low-price environment.

In the UK, we divested our Crown discovery, successfully monetising that asset and delivering early value to shareholders. We were also awarded further interesting blocks in the 31st licensing round which we are continuing to review.

The Colter well was drilled in the early part of last year. While the well made a new discovery at Colter South, the originally targeted structure did not meet our expectations. Little work was done in the year on our Wessex Basin portfolio, and with our focus now on the Egypt assets and more prospective opportunities elsewhere, we have taken the decision to begin the process to divest those assets.

Elsewhere, we remain committed to progressing our Jamaica asset and while the operator has now taken the decision to withdraw from the licence, we are optimistic about its potential and are in discussions with the Government to agree a path forward.

There was limited activity in the year on our interest in Benin and since the year end, as part of our portfolio rationalisation, we have taken the decision not to progress our option there.

Business development opportunities across the full cycle continued to be offered to and assessed by the team in the course of 2019. These were put through a rigorous review process and only the most attractive ones consistent with our strategy were taken forward. However, while there were a number of such opportunities still in our pipeline as we entered 2020, these will only be pursued as and when the current industry challenges are overcome.

AIM Listing and capital raising

In March 2019 the company's shares were admitted to trading on the AIM market of the London Stock Exchange.  While this was an onerous exercise in terms of both costs and management time, we believe that the move will prove to have been in the best interests of the company. It will lead to lower costs going forward and will assist us in undertaking with speed the type of value-adding transactions we look for to significantly grow our business.

In February 2020, as part of the financing for the Rockhopper Egypt assets, we raised £4.8 million at 3p with certain existing and new investors. We are very grateful for the support shown to the company by our existing shareholders in approving that fundraising, and of course by our new shareholders who we welcome to the company and I hope to meet in due course.

 

Financial Results for 2019

As expected at this stage in the company's history with no cash flow from operations during 2019, the company made a loss for the year. This loss of $2,139,075 comprises administrative expenditure in support of the company's activities, exploration costs written off (principally the Colter well), and costs associated with new ventures and evaluating acquisition opportunities. The costs of our AIM listing, the Egypt acquisition including a Reverse Takeover process as well as the corporate expenses associated with being a listed company, were also included. 

Key events since year end

At the end of February 2020, we completed the acquisition of the Rockhopper Egypt assets. Since the effective date of the acquisition the performance of these assets has been stellar, and they are providing positive operational cash flow even at current low prices.

 

 

 

 

Impact to the Company of COVID-19 and Oil Price uncertainty

The human and economic impact of the COVID-19 pandemic has been very significant. The priority of the Company remains the health and wellbeing of our employees and wider stakeholders. At this point in time, we are glad to report that all of our employees are safe and well and continuing to work from home.

Proactive measures taken by United and its partners to reduce near-term Capex commitments during current oil-price uncertainty and the impact of Covid-19 

·    Deferral of Italian Capex improves cash flow and moves expected first gas slightly to H1 2021

·    Deferral of Egyptian Capex reduces 2020 infill campaign from 4 wells to 1 well, significantly reducing gross 2020 Capex estimates. Further optimisation of the Capex and Opex budgets is being considered.

·    Completion of post-Egyptian-acquisition licence review sees divestment plans for selected non-core assets in the Wessex Basin and a decision not to exercise the farm-in option in Benin

·    Substantial cut in administrative expenditure resulting in further cost savings

 

There has been no impact on our operations in Egypt and the production and transport of oil and gas has continued uninterrupted. In Italy we expect the impact of COVID-19 to cause a slight delay in approvals for the Selva gas development project and now expect to deliver first gas in H1 2021.

In addition to this the Company's pre-payment facility with BP provides downside price protection by effectively hedging 6,600 bbls per month of production at $60/bbl. Coupled with this, c. 20% of United's net production is gas which is sold under a fixed contract that is relatively insensitive to oil-price changes. The low operating costs of Abu Sennan of ~ $6.50/bbl provide solid operating margins even at current oil price levels.

 

Conclusion

2019 was another very successful year for the company in the development and pursuit of our strategy and I would like to record my thanks to our executives and staff for their continued commitment and energy throughout the year.

Despite the challenges now facing our industry in 2020 with the rapid and unexpected oil price decline, and now the effects of COVID-19, I believe we are well placed to weather the storm and emerge from these crises with a balanced full cycle portfolio, the cash flow to fund our business and some exciting new opportunities under review.

 

Graham Martin                               

Chairman                            

 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

 

 

 

Notes

Year to 31 December 2019

 

Year to 31 December 2018

 

 

$

 

$

 

 

 

 

 

Revenue

 

-

 

-

Cost of sales

 

-

 

-

 

 

 

 

 

Gross profit / (loss)

 

-

 

-

 

 

 

 

 

Administrative expenses:

 

 

 

 

Other administrative expenses

 

(1,516,035)

 

(1,080,272)

Impairment of intangible assets

 

(2,111,319)

 

-

Gain on disposal of intangible assets

3

2,881,976

 

-

Acquisition and AIM expenses

 

(1,202,586)

 

-

Total administrative expenses

 

(1,947,964)

 

(1,080,272)

 

 

 

 

 

Operating loss

2

(1,947,964)

 

(1,080,272)

 

 

 

 

 

Interest expense

 

(4,841)

 

-

 

 

 

 

 

Loss before taxation

2

(1,952,805)

 

(1,080,272)

 

 

 

 

 

Taxation

5

(186,270)

 

-

 

 

 

 

 

Loss for the financial year attributable to the Company's equity shareholders

 

(2,139,075)

 

(1,080,272)

 

 

 

 

 

 

 

 

 

 

Loss per share from continuing operations

expressed in pence per share:

 

 

 

 

Basic and diluted

6

(0.62)

 

(0.38)

 

 

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

 

 

 

2019

 

2018

 

 

$

 

$

 

 

 

 

 

Loss for the financial year

 

(2,139,075)

 

(1,080,272)

Foreign exchange gains/(losses)

 

405,954

 

(496,793)

 

 

 

 

 

Total comprehensive loss for the financial year attributable to the Company's equity shareholders

 

(1,733,121)

 

(1,577,065)

 

 

 

 

 

 

 

 

Consolidated Balance Sheet as at 31 December 2019

 

 

Notes

2019

 

2018

Assets

 

$

 

$

Non-current assets

 

 

 

 

Intangible assets

8

5,580,864

 

5,226,219

Property, plant and equipment

9

26,722

 

4,717

 

 

5,607,586

 

5,230,936

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

10

3,524,655

 

739,119

Cash and cash equivalents

11

1,275,537

 

5,149,907

 

 

4,800,192

 

5,889,026

 

 

 

 

 

 

 

 

 

 

Total Assets

 

10,407,778

 

11,119,962

 

 

 

 

 

Equity and liabilities

 

 

 

 

Capital and reserves

 

 

 

 

Share capital

12

4,564,787

 

4,564,787

Share premium

12

9,912,988

 

9,912,988

Share-based payment reserve

13

1,591,808

 

1,465,036

Merger reserve

 

(2,697,357)

 

(2,697,357)

Translation reserve

 

(11,227)

 

(417,181)

Retained earnings

 

(4,255,398)

 

(2,116,323)

 

 

 

 

 

Shareholders' funds

 

9,105,601

 

10,711,950

 

 

 

 

 

Current liabilities:

 

 

 

 

Trade and other payables

14

1,085,701

 

408,012

Current tax payable

 

190,446

 

-

Lease liabilities

 

26,030

 

-

 

 

1,302,177

 

408,012

 

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

10,407,778

 

11,119,962

 

 

The financial statements were approved by the Board of Directors and authorised for their issue on 28 May 2020 and were signed on its behalf by:

 

Brian Larkin

Chief Executive Officer

Registered number: 09624969
 

Consolidated Statement of Changes in Equity  

 

 

 

 

 

 

 

 

 

 

 

Share
capital

Share premium

Share-based payments reserve

Retained
earnings

Translation reserve

Merger reserve

Total

 

 

$

$

$

$

$

$

$

For the year ended 31 December 2019

 

 

 

 

 

 

 

 

Balance at 1 January 2019

 

4,564,787

9,912,988

1,465,036

(2,116,323)

(417,181)

(2,697,357)

10,711,950

Loss for the year

 

-

-

-

(2,139,075)

-

(2,139,075)

Foreign exchange difference

 

-

-

-

 -

405,954

-

405,954

Total comprehensive income

 

-

-

-

(2,139,075)

405,954

-

(1,733,121)

Share based payments

 

-

-

126,772

-

-

-

126,772

Balance at 31 December 2019

 

4,564,787

9,912,988

1,591,808

(4,255,398)

(11,227)

(2,697,357)

9,105,601

 

 

 

 

 

 

 

 

 

For the year ended 31 December 2018

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

3,054,383

5,562,026

600,145

(1,036,051)

79,612

(2,697,357)

5,562,758

Loss for the year

 

-

-

-

(1,080,272)

-

-

(1,080,272)

Foreign exchange difference

 

-

-

-

-

(496,793)

-

(496,793)

Total comprehensive income

 

-

-

-

(1,080,272)

(496,793)

-

(1,577,065)

Exercise of share warrants

 

827

3,309

-

-

-

-

4,136

Issue of share capital

 

1,509,577

5,796,341

-

-

-

-

7,305,918

Share issue expenses

 

-

(1,448,688)

799,829

-

-

-

(648,859)

Issue of share options

 

-

-

65,062

-

-

-

65,062

Balance at 31 December 2018

 

4,564,787

9,912,988

1,465,036

(2,116,323)

(417,181)

(2,697,357)

10,711,950

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER

 

 

 

2019

 

2018

 

 

$

 

$

Cash flow from operating activities

 

 

 

 

Loss for the financial year before tax

 

(1,952,805)

 

(1,080,272)

Share-based payments

 

126,772

 

65,062

Depreciation

 

94,026

 

1,732

Impairment of intangible assets

 

2,111,319

 

-

Gain on disposal of intangible assets

 

(2,881,976)

 

-

Interest expense

 

4,841

 

-

Foreign exchange movements

 

268,159

 

(137,119)

 

 

 

 

 

 

 

(2,229,664)

 

(1,150,597)

Changes in working capital

 

 

 

 

Increase in trade and other receivables

 

(61,527)

 

(570,512)

Increase in trade and other payables

 

677,689

 

126,387

 

 

 

 

 

Cash outflow from operating activities

 

(1,613,502)

 

(1,594,722)

 

 

 

 

 

 

 

 

 

 

Cash outflow from investing activities

 

 

 

 

Disposal of intangible assets

 

950,000

 

-

Purchase of property, plant & equipment

 

(1,637)

 

(3,535)

Spend on exploration activities

 

(3,097,401)

 

(3,651,592)

 

 

 

 

 

Net cash (used in) investing activities

 

(2,149,038)

 

(3,655,127)

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

Issue of ordinary shares net of expenses

 

-

 

6,661,195

Capital payments on lease

 

(88,387)

 

-

Interest paid on lease

 

(4,841)

 

-

 

 

 

 

 

Net cash (used in) / generated from financing activities

 

(93,228)

 

6,661,195

 

 

 

 

 

 

 

 

 

 

Net (decrease) / increase in cash and cash equivalents

 

(3,855,768)

 

1,411,346

 

 

 

 

 

Cash and cash equivalents at beginning of financial year

 

5,149,907

 

4,097,985

Effects of exchange rate changes

 

(18,602)

 

(359,424)

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of financial year

 

1,275,537

 

5,149,907

 

 

 

 

 

 

 

Notes to the consolidated financial statements

 

Principal Accounting Policies

 

Company information

United Oil & Gas plc is a public limited company incorporated and domiciled in the United Kingdom.

 

Basis of preparation

The consolidated financial statements of United Oil & Gas plc and its subsidiaries (together "the Group" or "United Oil & Gas") have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, IFRIC interpretations, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

IFRS is subject to amendment and interpretation by the IASB and the IFRS Interpretations Committee, and there is an on-going process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 31 December 2019.

 

The principal accounting policies set out below have been consistently applied to all periods presented.

Basis of consolidation

The financial statements for the year ended 31 December 2019 incorporate the results of United Oil & Gas plc ("the Company") and entities controlled by the Company (its subsidiaries).  Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. 

 

All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and the Strategic Report.

 

The Directors' recent forecasts demonstrate that the Group will meet its day-to-day working capital and financial commitments over the forecast period (being at least 12 months from the date the financial statements were approved) from the cash held on deposit and planned oil and gas revenue from Abu Sennan in 2020, as further opportunities arise and the portfolio continues to grow in line with group strategy. This base case forecast is inclusive of the lower oil prices that are forecast well into 2021, primarily as a result of the global oil supply and demand dynamics and the COVID-19 pandemic. The Group has been able to defer a significant portion of the budgeted capital expenditure programme for 2020 and taken other measures to reduce the running costs of the business, which combined will protect the Group cashflows. Management have also considered some additional downside scenarios including a case where a significant contingent consideration receipt relating to the Crown disposal  due in late 2020 is not received within the forecast period, and if realised would place doubt on the ability to fund the business for 12 months from the current cash reserves and projected oil and gas revenues from Egypt. Some mitigating actions have been considered in the event that the downside scenario was realised and include further divestment of the portfolio, potential restructuring of debt arrangements and a further equity raise.

 

The Group has sufficient funding to meet planned financial commitments in relation to operational activities and a level of contingency, and as a result the directors continue to adopt the going concern basis of accounting in preparing the financial statements. However, in the downside scenario discussed, and without the successful implementation of mitigating actions, a material uncertainty does exist that may affect the ability of the company to continue as a going concern. The consolidated financial statements have not been adjusted for the scenario where the Group is not a going concern.

 

 

Foreign currency

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the year-end date. All differences are taken to the Income Statement.

 

Assets and liabilities of subsidiaries that have a functional currency different from the presentation currency (US dollar), if any, are translated at the closing rate at the date of each balance sheet presented. Income and expenses are translated at average exchange rates. All resulting exchange differences are recognised in other comprehensive income (loss), if any.

 

The Group has taken the decision to change its presentation currency to USD. This has been accounted for retrospectively as a change in accounting policy. In making this change in presentation currency, the Company followed the requirements set out in IAS 21, The Effects of Change in Foreign Exchange Rates. In accordance with IAS 21, the change in presentational currency is applied retrospectively and financial statements for the previous financial periods have therefore been translated into the new presentation currency.

 

Finance income and costs

Interest is recognised using the effective interest method which calculates the amortised cost of a financial asset or liability and allocates the interest income or expense over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the financial asset or liability. 

 

Exploration and evaluation assets

The group accounts for oil and gas expenditure under the full cost method of accounting. 

 

Costs (other than payments to acquire the legal right to explore) incurred prior to acquiring the rights to explore are charged directly to the profit and loss account. All costs incurred after the rights to explore an area have been obtained, such as geological, geophysical, data costs and other direct costs of exploration and appraisal are accumulated and capitalised as intangible exploration and evaluation ("E&E") assets.

 

E&E costs are not amortised prior to the conclusion of appraisal activities. At the completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered, then following development sanction, the carrying value of the relevant E&E asset will be reclassified as a development and production asset within tangible fixed assets.

 

If after completion of appraisal activities in an area, it is not possible to determine technical feasibility or commercial viability, then the costs of such unsuccessful exploration and evaluation are written off to the profit and loss account. The costs associated with any wells which are abandoned are fully amortised when the abandonment decision is taken.

 

Development and production assets, are accumulated generally on a field by-field basis and represent the costs of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves which have been transferred from intangible E&E assets.

 

The net book values of development and production assets are depreciated generally on a field-by-field basis using the unit of production method based on the commercial proven and probable reserves. Assets are not depreciated until production commences.

 

Other intangible assets

Other intangible assets acquired separately from a business combination are capitalised at cost.

 

Intangible assets are amortised on a straight-line basis over their useful lives as follows:

Computer software        33%

 

The carrying value of intangible assets is assessed annually and any impairment is charged to the income statement.

 

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation. Depreciation is provided on a straight-line basis at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life.

 

The annual rate of depreciation for each class of depreciable asset is:

Computer equipment    33%

 

The carrying value of property plant and equipment is assessed annually and any impairment is charged to the income statement.

 

Impairment of non-financial assets

At each balance sheet date, the Directors review the carrying amounts of the Group's tangible and intangible assets, other than goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.  If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit.

 

An impairment loss is recognised as an expense immediately.

 

An impairment loss recognised for goodwill is not reversed in subsequent periods.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognised in the Income Statement immediately.

 

Financial instruments

Recognition and derecognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

 

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.

 

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

 

 

Classification and initial measurement of financial assets

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

 

Financial assets are classified into the following categories:

·    amortised cost

·    fair value through profit or loss (FVTPL)

·    fair value through other comprehensive income (FVOCI).

 

In the periods presented the Group does not have any financial assets categorised as FVOCI or FVTPL.

 

The classification is determined by both:

·    the entity's business model for managing the financial asset

·    the contractual cash flow characteristics of the financial asset.

 

Subsequent measurement of financial assets

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions:

·    they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows

·    the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and other receivables fall into this category of financial instruments.

 

Impairment of Financial Assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model to be applied. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.

 

IFRS 9 requires the Group to recognise a loss allowance for expected credit losses on trade receivables.

 

In particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated creditimpaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition, the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12 months ECL.

 

Classification and measurement of financial liabilities

The Group's financial liabilities include trade and other payables.

 

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

 

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for contingent consideration designated at FVTPL, which is carried subsequently at fair value with gains or losses recognised in profit or loss.

 

All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

 

Leases

The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated and is presented under IAS 17. The details of accounting policies under both IAS 17 and IFRS 16 are presented separately below.

 

Policy applicable from 1 January 2019

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.

 

The lease liability is presented as a separate line in the balance sheet.

 

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

 

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

·    The lease term has changed in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

·    The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

·    A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, prepayments made on the lease at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset.

 

The depreciation starts at the commencement date of the lease.

 

Policy applicable prior to 1 January 2019

Operating leases

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease") amounts payable under the lease are charged to the income statement on a straight-line basis over the lease term.

 

 

 

Taxation

Current taxation for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet date and includes adjustments to tax payable or recoverable in respect of previous periods.

 

Deferred taxation

Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised, or the deferred tax liability is settled.

 

Deferred tax liabilities are provided in full.

 

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

 

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

Share-based payments

Where share-based payments (warrants and options) have been granted, IFRS 2 has been applied whereby the fair value of the share-based payments is measured at the grant date and spread over the period during which they vest. A valuation model is used to assess the fair value, taking into account the terms and conditions attached to the share-based payments. The fair value at grant date is determined including the effect of market-based vesting conditions, to the extent such vesting conditions have a material impact.

 

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the holders become fully entitled to the award ("the vesting date").

 

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.

 

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee, as measured at the date of modification.

 

Where an equity-settled award (share options) is cancelled, it is treated as if it had vested on the date of cancellation if it had not yet fully vested, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

 

Where an equity-settled award is forfeited, the cumulative charge expensed up to the date of forfeiture is credited to the Income Statement. Upon expiry of an equity-settled award, the cumulative charge expensed is transferred from the Share-based payment reserve to retained earnings.

 

Equity

Equity comprises the following:

·    "Share capital" represents amounts subscribed for shares at nominal value.

·    "Share premium" represents amounts subscribed for share capital, net of issue costs, in excess of nominal value.

·    "Share-based payment reserve" represents the accumulated value of share-based payments.

·    "Retained earnings" represents the accumulated profits and losses attributable to equity shareholders.

·    "Translation reserve" represents the exchange differences arising from the translation of the financial statements of subsidiaries into the Group's presentational currency.

·    "Merger reserve" represents amounts arising from statutory merger relief arising on business combinations.

 

 

New and amended International Financial Reporting Standards adopted by the Group

 

The Group has adopted the following standards, amendments to standards and interpretations which are effective for the first time this year.  The impact is shown below:

 

New/Revised International Financial Reporting Standards

Effective Date: Annual periods beginning on or after:

EU
adopted

Impact on
the Group

IFRS 16

Leases

1 January 2019

Yes

See below

 

Annual Improvements to IFRS Standards 2015-2017 Cycle

1 January 2019

Yes

Immaterial

 

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring all leases (subject to exemptions) to be recognised giving a right of use asset and lease liability in the balance sheet, with the statement of comprehensive income reflecting depreciation of the right of use asset and the interest charge on the lease liability.

 

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with the former operating lease.

 

The new Standard has been applied using the modified retrospective approach, with right of use asset and corresponding liability recognised as an adjustment in the current period. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition. Prior periods have not been restated.

 

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 January 2019.

 

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

 

The impact of the implementation of this standard is set out below:

 

·    Recognition of lease liabilities and right of use assets, the initial impact of which is an increase in property, plant and equipment and in total liabilities.

·    A new finance expense due to the lease finance charge

·    Increased annual depreciation of property, plant and equipment for the duration of the leases

·    Elimination of the former operating lease rental expense

 

International Financial Reporting Standards in issue but not yet effective

 

At the date of authorisation of the consolidated financial statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Group.

 

Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of these consolidated financial statements, the following could have a material impact on the Group's financial statements going forward:

 

New/Revised International Financial Reporting Standards

Effective Date: Annual periods beginning on or after:

EU
adopted

IAS 1

Amendments to IAS 1 and IAS 8: Definition of Material

 

1 January 2020

Yes

IAS 1

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

 

1 January 2022

No

IFRS 3

Amendment to IFRS 3 Business Combinations

 

1 January 2020

Yes

IFRS 3

Amendment to IFRS 3 Business Combinations

 

1 January 2022

No

IAS 16

Amendments to IAS 16 Property, Plant and Equipment

1 January 2022

No

IAS 37

Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets

1 January 2022

No

 

Annual Improvements: minor amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, and the Illustrative Examples accompanying IFRS 16 Leases

1 January 2022

No

 

New / revised International Financial Reporting Standards which are not considered to potentially have a material impact on the Group's financial statements going forwards have been excluded from the above.

 

Management anticipates that all relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not listed above are not expected to have a material impact on the Group's financial statements.

 

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.

 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The following are the significant judgements used in applying the accounting policies of the Group that have the most significant effect on the financial statements:

 

Impairment of exploration licenses

 

Management reviews intangible exploration assets for indicators of impairment under IFRS 6 - Exploration for and Evaluation of Mineral Resources at the end of each reporting period.  This review of assets for potential indicators of impairment requires judgement including whether renewal of licences is planned, interpretation of the results of exploration activity and the extent to which the Group plans to continue substantive expenditure on the assets.  In determining whether substantive expenditure remains in the Group's plan, management considers factors including future oil prices, plans to develop or renew licences and future exploration plans. If impairment indicators exist the assets are tested for impairment and carried at the lower of the estimated recoverable amount and net book value.

 

During the year, a decision was taken to impair the Colter intangible exploration asset. Management did not consider there to be any indicators of impairment in the remaining intangible exploration assets at any reporting date presented.

 

Fair value of consideration in relation to Crown Disposal

 

Management have applied judgement in determining the consideration recognised for the Crown disposal in accordance with IFRS 5, including a receivable for contingent consideration of $2.85m. In the event of non-payment of the contingent consideration the Group would retain the asset which has been attributed a fair value of $3.8m as a result of the disposal deal.

 

 

Notes to the Consolidated Financial Statements

 

1.      Segmental reporting

 

Operating segments

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources, assessing the performance of the operating segment and making strategic decision, has been identified as the Board of Directors. The Board of Directors consider that the Group has only one operating segment at corporate level, being the exploration and evaluation of oil and gas prospects, therefore no additional segmental information is presented.

 

The Group operates in three geographic areas - the UK, Europe and greater Mediterranean and Latin America. The Group's revenue from external customers and information about its non-current assets (other than financial instruments, investments accounted for using the equity method, deferred tax assets and post-employment benefit assets) by geographical location are detailed below.

 

2019

 

 

 

 

 

$

 

UK

Other EU

Latin America

Total

 

 

 

 

 

 

Revenue

 

-

-

-

Non-current assets

 

511,009

2,336,837

5,607,586

 

 

2018

 

 

 

 

 

$

 

UK

Other EU

Latin America

Total

 

 

 

 

 

 

Revenue

 

-

-

-

Non-current assets

 

872,229

2,185,608

5,230,936

 

 

2.      Operating loss

 

 

2019

 

2018

 

$

 

$

Operating loss is stated after charging/(crediting):

 

 

 

Fees payable to the Company's auditors for the audit of the annual financial statements

40,000

 

40,000

Fees payable to the Company's auditors and its associates for other services to the Group:

 

 

 

-   Tax compliance services

10,000

 

8,000

-   Reporting accountant services

90,000

 

13,000

 

 

3.      Disposal of Crown asset

 

On 12 December 2019, United announced the completion of the sale of its 95% share in the North Sea Blocks 12/18d and 15/19b (licence P2366) to Anasuria Hibiscus UK limited. The disposal was of the aforementioned licence only, and the UOG Crown Limited subsidiary company is retained in the group.

 

Under the deal for this disposal of the Crown licence (intangible asset disposal - see note 8), United received $950,000 in 2019 on completion, with a further receivable of $2,850,000 due in 2020 which is contingent upon approval of an FDP, the latter amount being reflected in current receivables in the balance sheet. In the event of non-payment of the latter amount, ownership of the licence asset would return to the Group.

 

Having acquired the licence in 2018 and incurred costs of $918,024 in the interim period on a work programme, some in-house technical work, and the costs of disposal the Group is reporting a profit on disposal before tax in its 2019 Income Statement of $2,881,976.

 

4.      Directors and employees

 

The aggregate payroll costs of the employees, including both management and Executive Directors, were as follows:

 

 

2019

 

2018

 

$

 

$

Staff costs

 

 

 

Wages and salaries

675,928

 

514,480

Share-based payments

126,772

 

65,064

Social security

31,958

 

19,717

 

 

 

 

 

834,658

 

599,261

 

Average monthly number of persons employed by the Group during the year was as follows:

 

 

2019

 

2018

 

Number

 

Number

By activity:

 

 

 

Administrative

3

 

3

Directors

5

 

4

 

 

 

 

 

8

 

7

 

 

 

2019

 

2018

 

$

 

$

Remuneration of Directors

 

 

 

Emoluments and fees for qualifying services

450,450

 

389,538

Share-based payments

112,015

 

57,490

Social security

13,881

 

4,966

 

 

 

 

 

576,346

 

451,994

 

Key management personnel are identified as the Executive Directors.

 

No share warrants have been exercised by any of the directors, nor have any payments of pensions contributions been made on behalf of directors in any of the periods presented.

 

 

 

5.      Taxation

 

2019

 

2018

 

$

 

$

 

 

 

 

Loss before tax

(1,952,805)

 

(1,080,272)

Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2018: 19%)

(371,033)

 

(216,054)

Tax effects of:

 

 

 

Unrelieved tax losses carried forward

557,303

 

216,054

 

 

 

 

Corporation tax charge

186,270

 

-

 

The Group has accumulated tax losses of approximately $4m (2018: $2m).  No deferred tax asset was recognised in respect of these accumulated tax losses as there is insufficient evidence that the amount will be recovered in future years.

 

6.      Loss per share

 

The Group has issued share warrants and options over Ordinary shares which could potentially dilute basic earnings per share in the future. Further details are given in note 13.

 

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.


Due to the losses incurred during the year, a diluted loss per share has not been calculated as this would serve to reduce the basic loss per share. There were 93,329,853 (2018: 93,329,853) share warrants and options outstanding at the end of the year that could potentially dilute basic earnings per share in the future.

 

Basic and diluted loss per share

 

2019

 

2018

 

Cents

 

Cents

Loss per share from continuing operations

(0.62)

 

(0.38)

 

The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

 

2019

 

2018

 

$

 

$

Loss used in the calculation of total basic and diluted loss per share

(2,139,075)

 

(1,080,272)

 

 

Number of shares

2019

 

2018

 

Number

 

Number

Weighted average number of ordinary shares for the purposes of basic and diluted loss per share

345,613,985

 

282,810,516

 

 

 

7.      Subsidiaries

 

Details of the Group's subsidiaries in 2019 are as follows:

 

Name & address of subsidiary

Principal activity

Class of shares

Place of incorporation

and operation

% ownership held by the Group

 

 

 

 

2019

2018

 

 

 

 

 

 

UOG Holdings plc

200 Strand, London, WC2R 1DJ

Intermediate holding company

Ordinary

England and Wales

100

100

 

 

 

 

 

 

UOG Ireland Limited*

9 Upper Pembroke Street, Dublin 2, Ireland

Intermediate holding company

Ordinary

Ireland

100

100

 

 

 

 

 

 

UOG PL090 Ltd*

200 Strand, London, WC2R 1DJ

Oil and gas exploration

Ordinary

England and Wales

100

100

 

 

 

 

 

 

UOG Italia Srl*

Viale Gioacchino Rossini 9, 00198, Rome, Italy

Oil and gas exploration

Ordinary

Italy

100

100

 

 

 

 

 

 

UOG Jamaica Ltd*

200 Strand, London, WC2R 1DJ

Oil and gas exploration

Ordinary

England and Wales

100

100

 

 

 

 

 

 

UOG Crown Ltd*

200 Strand, London, WC2R 1DJ

Oil and gas exploration

Ordinary

England and Wales

100

100

 

 

 

 

 

 

UOG Colter Ltd*

200 Strand, London, WC2R 1DJ

Oil and gas exploration

Ordinary

England and Wales

100

100

 

 

*held indirectly by United Oil & Gas

 

 

 

8.    Intangible assets

 

 

Exploration and Evaluation assets

$

 

Computer software

$

 

 

Total

$

Cost

 

 

 

 

 

 

At 1 January 2018

 

1,574,627

 

-

 

1,574,627

Additions

 

3,902,289

 

-

 

3,902,289

Foreign exchange differences

 

(250,697)

 

-

 

(250,697)

 

 

 

 

 

 

 

At 31 December 2018

 

5,226,219

 

-

 

5,226,219

Additions

 

3,086,027

 

11,374

 

3,097,401

Disposals

 

(792,033)

 

-

 

(792,033)

Foreign exchange differences

 

207,925

 

-

 

207,925

 

 

 

 

 

 

 

At 31 December 2019

 

7,728,138

 

11,374

 

7,739,512

 

 

 

 

 

 

 

Amortisation and impairment

 

 

 

 

 

 

At 1 January 2018

 

-

 

-

 

-

Charge for the year

 

-

 

-

 

-

 

 

 

 

 

 

 

At 31 December 2018

 

-

 

-

 

-

Charge for the year

 

-

 

-

 

-

Impairment

 

2,111,319

 

-

 

2,111,319

Foreign exchange differences

 

47,329

 

-

 

47,329

 

 

 

 

 

 

 

At 31 December 2019

 

2,158,648

 

-

 

2,158,648

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 December 2019

 

5,569,490

 

11,374

 

5,580,864

 

 

 

 

 

 

 

At 31 December 2018

 

5,226,219

 

-

 

5,226,219

 

 

 

 

At 31 December 2019 the group's E&E carrying values of $5.6m related to our development Selva asset in Italy, our high impact exploration activity in Jamaica, and the UK North Sea and Wessex basin exploration/development work programmes. During the year we divested the Crown Discovery in the North Sea, and after evaluating a number of commercialization options, have made the decision to write off the expenditure on the Colter wells.

 

Our Italian development at the Selva field continued to make progress in 2019. Factoring in the impact of Covid-19, we are now targeting first production in early 2021. Formal technical environmental approval from the Italian Environmental Ministry was granted in January 2020 and preliminary work has commenced on the development programme preparing for first gas. Testing has previously indicated rates of 150,000scm/day with UOG's economic interest being 20%. At the Balance Sheet date $2,335,135 had been capitalised for our Italian asset.

 

In Jamaica work continued in 2019 on the processing of 3D seismic data acquired during the previous year, adding further prospectivity to the numerous structures already identified in the licence. Further resources and funds were also spent during 2019 on a joint-venture farm out process, led by the operator to seek partners to participate in drilling an exploration well. This generated significant interest, but the current market conditions have proven a challenging environment in which to complete a farm-down of such a frontier wildcat opportunity. A 6-month extension to the initial Exploration Period was granted in January 2020, giving the Joint Venture until the 31st July before a drill-or-drop decision is required. United has indicated to the Jamaican authorities that it wishes to explore options for continuing to progress what United believe to be a transformative licence beyond the 31 July deadline, and discussions to this end have been initiated positively with the Government. As at 31 December UOG are carrying $2,764,170 for Jamaica in its Intangibles number.

 

In the UK, United has had an interesting year. In the North Sea, Licence P2480, containing four blocks, was acquired in the OGA's 31st licensing round, whilst the divestment of Licence P2366, containing the Crown discovery was completed for a significant profit. In the Wessex Basin, the Colter well (98/11a-6) and its sidetrack have been fully impaired, whilst the work programme continues on the Waddock Cross development.

 

A key achievement of the year was the divestment of the Crown licence to Anasuria Hibiscus UK Limited for an initial $4m of which United have a 95% share. This sale required the net off of costs incurred from the work programme and some disposal costs, amounting to $792,033 in total. With the addition of the 31st round licences in Q3 of 2019 the company is carrying a small value of $33,884 on its North Sea assets, with a work programme to ramp up in 2020/2021 on the P2480 licence, which includes the Zeta prospect.

 

In the PL090 licence, work continues with some independent reservoir modelling after the seismic completion in 2018 and at the Balance Sheet date the company is carrying $481,336 in capitalised costs in this licence.

 

In licence P1918 the Colter Well and side-track were drilled in Q1 of 2019. Despite some encouraging signs and positive CPR indicators of a structure that could hold up to 24 MMstb in an upside case, the company has decided to impair its costs in full, amounting to $2,158,649. This decision was made as after evaluating numerous scenarios, it was determined that to make further progress towards development, further investment in 3D seismic acquisition and an appraisal well would be required. The company's view is that such investment would be more profitably deployed elsewhere.

 

Management review the intangible exploration assets for indications of impairment at each balance sheet date based on IFRS 6 criteria. Commercial reserves have not yet been established and the evaluation and exploration work is ongoing. The Directors believe the only impairment indicators relate to Colter (as described above) and have impaired all associated costs to date accordingly, with all remaining assets described continuing to be carried at cost.

 

 

 

 

9.    Property, plant and equipment

 

 

 

Computer equipment

$

 

Right of use asset

$

 

 

Total

$

Cost

 

 

 

 

 

 

At 1 January 2018

 

3,773

 

-

 

3,773

Additions

 

3,535

 

-

 

3,535

Foreign exchange differences

 

(356)

 

-

 

(356)

 

 

 

 

 

 

 

At 31 December 2018

 

6,952

 

-

 

6,952

Transition to IFRS 16

 

-

 

72,453

 

72,453

Additions

 

1,637

 

41,860

 

43,497

Foreign exchange differences

 

 -

 

462

 

462

 

 

 

 

 

 

 

At 31 December 2019

 

8,589

 

114,775

 

123,364

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 1 January 2018

 

609

 

-

 

609

Charge for the year

 

1,732

 

-

 

1,732

Foreign exchange differences

 

(106)

 

-

 

(106)

 

 

 

 

 

 

 

At 31 December 2018

 

2,235

 

-

 

2,235

Charge for the year

 

3,562

 

90,464

 

94,026

Foreign exchange differences

 

15

 

366

 

381

 

 

 

 

 

 

 

At 31 December 2019

 

5,812

 

90,830

 

96,642

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 December 2019

 

2,777

 

23,945

 

26,722

 

 

 

 

 

 

 

At 31 December 2018

 

4,717

 

-

 

4,717

 

 

 

 

 

 

 

Depreciation is recognised within administrative expenses.

 

10.  Trade and other receivables

 

 

2019

 

2018

 

$

 

$

 

 

 

 

Prepayments and deposit

340,019

 

68,636

Other tax receivables

334,636

 

670,483

Crown disposal proceeds due

2,850,000

 

-

 

 

 

 

 

3,524,655

 

739,119

 

The Directors consider that the carrying values of trade and other receivables are approximate to their fair values.

 

No expected credit losses exist in relation to the Group's receivables as at 31 December 2019 (2018: £nil).

 

Prepayments and deposits relate to monies paid in advance in relation to the Rockhopper acquisition completed after the balance sheet date, and 2 months advance rent on the office.

 

Crown disposal proceeds due are being carried at the full value of the ascertainable contingent consideration expected to be received (see note 3).

 

 

11.  Cash and cash equivalents

 

 

2019

 

2018

 

$

 

$

 

 

 

 

Cash at bank (GBP)

263,536

 

4,975,449

Cash at bank (EUR)

21,465

 

74,891

Cash at bank (USD)

990,536

 

99,567

 

 

 

 

 

1,275,537

 

5,149,907

 

At 31 December 2019 and 2018 all significant cash and cash equivalents were deposited in the UK and Ireland with large international banks.

 

12.  Share capital, share premium and merger reserve

 

          Allotted, issued, and fully paid:

 

 

 

 

2019

 

 

 

Share capital

Share premium

 

 

No

$

$

Ordinary shares of $0.01 each

 

 

 

 

 

 

 

 

 

At 1 January and 31 December 2019

 

345,613,985

4,564,787

9,912,988

 

 

 

 

 

 

 

 

 

 

2018

 

 

 

Share capital

Share premium

 

 

No

$

$

Ordinary shares of $0.01 each

 

 

 

 

At 1 January 2018

 

232,185,001

3,054,383

5,562,026

 

 

 

 

 

Allotments:

 

 

 

 

28 February 2018

 

60,000

827

3,309

11 May 2018

 

58,823,530

797,404

2,591,561

08 October 2018

 

54,545,454

712,173

3,204,780

Share issue costs

 

-

-

(1,448,688)

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

345,613,985

4,564,787

9,912,988

 

 

 

 

 

 

As regards income and capital distributions, all categories of shares rank pari passu as if the same constituted one class of share.

 

13.  Share-based payments

 

Options

 

Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows:

 

2019

 

 

Number of

Options

WAEP

£

 

 

 

Outstanding at the beginning of the year

11,117,647

0.05

Issued

-

-

 

 

 

Outstanding at the year end

11,117,647

0.05

 

 

 

 

 

 

Number vested and exercisable at 31 December 2019

-

-

 

 

 

 

2018

 

 

Number of

Options

WAEP

£

 

 

 

Outstanding at the beginning of the year

-

-

Issued

11,117,647

0.05

 

 

 

Outstanding at the year end

11,117,647

0.05

 

 

 

 

 

 

Number vested and exercisable at 31 December 2018

-

-

 

 

 

 

The fair values of share options issued in the current financial year were calculated using the Black Scholes model as follows:

 

 

Share options

 

Date of grant

25 June 2018

 

Number granted

11,117,647

 

Share price at date of grant

£0.05

 

Exercise price

£0.04

 

Expected volatility

58%

 

Expected life from date of grant (years)

6.5

 

Risk free rate

0.9876%

 

Expected dividend yield

0%

 

Fair value at date of grant

£293,069

 

Earliest vesting date

25 June 2021

 

Expiry date

25 June 2028

 

 

Expected volatility was determined based on the historic volatility of the Company's shares for a period averaging 1 year. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

 

The Group recognised total expenses of $126,772 in the income statement in relation to share options accounted for as equity-settled share-based payment transactions during the year in relation (2018: $65,062).

 

Warrants

 

Details of the number of share warrants and the weighted average exercise price (WAEP) outstanding during the year are as follows:

 

2019

 

 

Number of

Warrants

WAEP

£

 

 

 

Outstanding at the beginning of the year

82,212,206

0.04

 

 

 

 

 

 

Outstanding at the year end

82,212,206

0.04

 

 

 

 

 

 

Number vested and exercisable at 31 December 2019

82,212,206

0.04

 

 

 

 

2018

 

 

Number of

Warrants

WAEP

£

 

 

 

Outstanding at the beginning of the year

37,260,000

0.02

Exercised

(60,000)

(0.05)

Issued

45,012,206

0.05

 

 

 

Outstanding at the year end

82,212,206

0.04

 

 

 

 

 

 

Number vested and exercisable at 31 December 2018

41,303,126

0.02

 

 

 

 

 

 

The fair values of share warrants issued or extended in the current financial year were calculated using the Black      Scholes model as follows:

 

 

Share warrants

Share warrants

 

Share warrants

Share warrants

 

Share warrants

Date of grant

 

31 July 2017

31 July 2017

27 December 2017

11 May 2018

18 September 2018

Number granted

 

28,000,000

9,200,000

1,375,000

2,728,126

40,909,080

Share price at date of grant

 

£0.03

£0.03

£0.04

£0.04

£0.06

Exercise price

 

£0.01

£0.03

£0.04

£0.04

£0.08

Expected volatility

 

59%

59%

55%

56%

58%

Expected life from date of grant (years)

 

2.5

2.5

2.5

2.5

2.5

Risk free rate

 

0.5555%

0.5555%

0.7280%

1.0783%

1.1283%

Expected dividend yield

 

0%

0%

0%

0%

0%

Fair value / incremental fair value at date of grant

 

£382,533

£72,959

£18,952

£40,957

£550,390

Earliest vesting date

 

31 July 2017

31 July 2017

27 December 2017

11 May 2018

Expiry date

 

31 July 2022

31 July 2022

27 December 2022

11 May 2023

18 September 2022

 

Expected volatility was determined based on the historic volatility of a comparable company's shares for a period averaging 1 year. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

 

The Group recognised total expenses of $nil in relation to share warrants accounted for as equity-settled share-based payment transactions during the year in relation (2018: $799,829). These were recognised as follows:

 

$nil (2018: $799,829) as a deduction from share premium related to share warrants accounted for as equity-settled share-based payment transactions during the year.

 

 

 

 

 

 

 

 

14.  Trade and other payables

 

 

2019

 

2018

 

$

 

$

 

 

 

 

Trade payables

403,816

 

10,403

Tax and social security

26,151

 

20,571

Other payables

200,074

 

1,610

Deferred shares (note 15)

39,804

 

38,281

Accruals

415,856

 

337,147

 

 

 

 

 

1,085,701

 

408,012

 

15.  Deferred shares

 

On 12 October 2015, the Company issued 30,000 Deferred Shares of £1 for £30,000 to the Founder, which have an entitlement to a non-cumulative annual dividend at a fixed rate of 0.1 per cent of their nominal value. The Deferred Shares have no voting rights attached to them, and may be redeemed in their entirety by the Company for an aggregate redemption payment of £1.

 

16.  Leases

 

Disclosure required by IFRS 16

 

Right of use assets

The Group used leasing arrangements relating to property, plant and equipment. As the Group has the right of use of the asset for the duration of the lease arrangement, a "right of use" asset is recognised within property, plant and equipment.

 

When a lease begins, a liability and right of use asset are recognised based on the present value of future lease payments.

 

 

2019

 

$

 

 

Interest expense on lease liabilities

4,841

Total cash outflow for leases

(93,228)

 

 

Additions to right-of-use assets

114,313

Depreciation charge - right of use assets

(90,464)

Foreign exchange movement on right of use assets

96

Carrying amount at the end of the year:

 

       Right of use assets

23,945

 

 

 

 

 

 

 

Lease liabilities

 

2019

 

$

 

 

Current

26,030

Non-current

-

 

 

 

26,030

 

Disclosure required by IAS 17

 

Operating leases

 

Minimum lease payments under non-cancellable operating leases fall due as follows:

 

2018

Land and buildings:

$

 

Less than one year

75,668

Between one and five years

-

 

During 2018, $nil was recognised as an expense in the income statement in relation to operating leases.

 

17.  Financial instruments

 

Categories of financial instruments

 

The tables below set out the Group's accounting classification of each class of its financial assets and liabilities.

 

Financial assets

2019

 

2018

 

$

 

$

 

 

 

 

Crown disposal proceeds due (note 10)

2,850,000

 

-

Cash and cash equivalents (note 11)

1,275,537

 

5,149,907

 

 

 

 

 

4,125,537

 

5,149,907

 

All of the above financial assets' carrying values are approximate to their fair values, as at 31 December 2019 and 2018.

 

Financial liabilities

Measured at amortised cost

 

2019

 

2018

 

$

 

$

 

 

 

 

Trade payables (note 14)

403,816

 

10,403

Other payables (note 14)

200,074

 

1,610

Lease liabilities (note 16)

26,030

 

-

Accruals (note 14)

415,856

 

337,147

 

 

 

 

 

1,045,776

 

349,160

 

 

 

 

 

In the view of management, all of the above financial liabilities' carrying values approximate to their fair values as at 31 December 2019 and 2018.

 

Fair value measurements

 

This note provides information about how the Group determines fair values of various financial assets and financial liabilities.

 

Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis

 

The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values (due to their nature and short times to maturity).

 

18.  Financial instrument risk exposure and management

 

The Group's operations expose it to degrees of financial risk that include liquidity risk, credit risk, interest rate risk.

 

This note describes the Group's objectives, policies and process for managing those risks and the methods used to measure them.  Further quantitative information in respect of these risks is presented in notes 10, 11, 14, 15, 16, 17 and 19.

 

Liquidity risk

 

Liquidity risk is dealt with in note 19 of these financial statements.

 

Credit risk

 

The Group's credit risk is primarily attributable to its cash balances.

 

The credit risk on liquid funds is limited because the third parties are large international banks with a minimum investment grade credit rating.

 

The Group's total credit risk amounts to the total of other receivables and cash and cash equivalents.  Credit assessments are routinely reviewed on all of the Group's joint venture partners and other counterparties.

 

Interest rate risk

 

The Group's only exposure to interest rate risk is the interest received on the cash held on deposit, which is immaterial.  The Group does not have any borrowings as at 31 December 2019.

 

Foreign exchange risk

 

The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in currencies other than USD. The Group's transactions are carried out in GBP, EUR and USD. Equity funding transactions are carried out in GBP. Operational transactions are carried out predominantly in USD but also in GBP and EUR.  

 

The monetary assets and liabilities denominated in currencies other than USD are e relatively immaterial (see notes 10 and 11) and transactional risk is considered manageable.

 

The Group does not hold material non-domestic balances and currently does not consider it necessary to take any action to mitigate foreign exchange risk due to the immateriality of that risk.

 

 

19.  Liquidity risk

 

Prudent liquidity risk management includes maintaining sufficient cash balances to ensure the Group can meet liabilities as they fall due.

 

In managing liquidity risk, the main objective of the Group is therefore to ensure that it has the ability to pay all of its liabilities as they fall due. The Group monitors its levels of working capital to ensure that it can meet its debt repayments as they fall due.  The table below shows the undiscounted cash flows on the Company's / Group's financial liabilities as at 31 December 2019 and 2018, on the basis of their earliest possible contractual maturity.

 

 

 

 

Total

 

Payable on demand

 

Within 2
months

 

Within

2 -6
months

 

Within

6 - 12
months

 

Within

1-2
years

 

$

 

$

 

$

 

$

 

$

 

$

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

Trade payables

403,816

 

-

 

403,816

 

-

 

-

 

-

Other payables

200,074

 

200,074

 

-

 

-

 

-

 

-

Lease liabilities

26,446

 

-

 

17,631

 

8,815

 

-

 

-

Accruals

415,856

 

-

 

-

 

415,856

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

1,046,192

 

200,074

 

421,447

 

424,671

 

-

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

Trade payables

10,403

 

-

 

10,403

 

-

 

-

 

-

Other payables

1,610

 

1,610

 

-

 

-

 

-

 

-

Accruals

337,147

 

-

 

-

 

337,147

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

349,160

 

1,610

 

10,403

 

337,147

 

-

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other payables comprise loans from directors which are repayable on demand.

 

 

20.  Capital management

 

The Group's capital management objectives are:

·    To provide long-term returns to shareholders

·    To ensure the Group's ability to continue as a going concern; and

 

The Group defines and monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of the balance sheet and as follows:

 

 

2019

 

2018

 

$

 

$

 

 

 

 

Equity

9,105,601

 

10,711,950

Cash and cash equivalents

(1,275,537)

 

(5,149,907)

 

 

 

 

 

7,830,064

 

5,562,043

 

 

The Board of Directors monitors the level of capital as compared to the Group's commitments and adjusts the level of capital as is determined to be necessary by issuing new shares.  The Group is not subject to any externally imposed capital requirements.

 

These policies have not changed in the year. The Directors believe that they have been able to meet their objectives in managing the capital of the Group.

21.  Related party transactions

 

Key management personnel are identified as the Executive Directors, and their remuneration is disclosed in note 3.

 

Loan from director

 

 

 

Brian Larkin

 

 

$

Principal

 

 

At 31 December 2017

11,558

Loans repaid

(11,402)

Foreign exchange differences

(156)

At 31 December 2018

-

Loans repaid

-

At 31 December 2019

-

 

The loan balance was repayable on demand with no formal terms.

 

 

22.  Financial commitments

 

As at 31 December 2019, the Group's commitments comprise their exploration expenditure interests in Waddock Cross, Crown, Colter, Po Valley and the Walton-Morant licence. These commitments have been summarised below:

 

Exploration licence

Year

ending 31 December 2019

Year

ending 31 December 2020

 

$

$

Crown

107,045

9,952

Colter

1,067,590

6,774

Walton-Morant licence

751,676

103,407

Po Valley

75,377

177,883

Waddock Cross

47,039

47,314

 

2,048,727

345,330

 

 

23.  Ultimate controlling party

 

The directors do not consider there to be an ultimate controlling party.

 

 

 

24. Events after the balance sheet date

 

1.    On 28 February 2020 the company announced that it has completed the acquisition of Rockhopper Egypt Pty Ltd. from Rockhopper Exploration plc. The Acquisition, which has an effective date of 1st January 2019, includes a 22% non-operating interest in the producing Abu Sennan concession, onshore Egypt.

 

The consideration for the Acquisition was US$16 million (approximately £13 million) which was being funded by:

·    the issue to Rockhopper PLC of 114,503,817 Consideration Shares at 3 pence per Ordinary Share representing 18.5% of the Company's Enlarged Ordinary Share Capital,

·    a pre-payment financing structure of US$8 million provided by BP ('the BP Facility') and

·    the issue of 150,616,669 Placing Shares at 3 pence per share with certain existing and new investors and 8,419,498 Subscription Shares also at 3 pence per share.

 

Consideration Shares held by Rockhopper in United are subject to certain lock-up and orderly market disposal provisions for a period of up to 12 months from completion.

 

This deal and its financial impacts are transformational for the company. At 31 December 2019 the acquired company had net assets of $15.9m and generated profits of $2.4m in 2019.

 

 

 

 

$'000

Intangible exploration and evaluation assets

3,012

Property, plant and equipment

11,764

Inventories

67

Other receivables

3,082

Other payments

-2,000

 

15,925

 

 

 

$'000

Revenue's

7,637

Cost of sales

4,629

Administration & other costs

635

Profits

2,373

 

 

Post year-end, gross production has continued to increase upwards from early 2019 levels of 5,000 boepd to over 8,500 boepd in May 2020 (1,870 boepd to United's working Interest), with the ASH-2 well coming on stream in Q1.

Even at the current levels of lower commodity prices, the Abu Sennan assets remain on track to add significant revenue, profits and cashflow to United in 2020. Proactive measures have been taken by the joint venture partners including the deferral of three of the four wells in the 2020 campaign and further optimization of the Capital and Operating expenditure budgets is being considered.

 

2.    On the 12 March 2020 UOG announced that further to the Rockhopper acquisition and readmission of shares announcement of 28 February 2020, the Company has appointed Mr. Stewart MacDonald as Non-Executive Director of the Company.  

 

3.    Impact of COVID-19

Directors have considered the impact of the COVID-19 pandemic and measures were taken in response to the situation and oil-price volatility.

 

The Company is going forward with an awareness that, due to the COVID-19, the low oil price and decline in oil and gas demand may sustain. Both human and economic impact has been very significant so far and at this point the long-term effect is uncertain. United has published a statement regarding the fall of Brent oil price in March and April, underlining the facts and efforts that management and staff are making to maintain the company's operations.

 

Proactive measures taken by United and its partners to reduce near-term Capex commitments during current oil-price uncertainty and the impact of Covid-19 

 

·    Deferral of Italian Capex improves cash flow and moves expected first gas slightly to H1 2021

·    Deferral of Egyptian Capex reduces 2020 infill campaign from 4 to 1 well, significantly reducing gross 2020 Capex estimates. Further optimisation of the Capex and Opex budgets is being considered.

·    Completion of post-Egyptian-acquisition licence review sees divestment plans for selected non-core assets in the Wessex Basin and a decision not to exercise the farm-in option in Benin

·    Substantial cut in administrative expenditure resulting in further cost savings

 

Measures taken to minimise the impact of oil-price uncertainty and Covid-19 will help safeguard the company during the current industry challenges, with the aim of putting it in a position to take advantage of future opportunities

The Company's pre-payment facility with BP is based on a floor price of $60/bbl for c.6,600 bbls of crude oil production per month for the next thirty months. This provides downside price protection by effectively hedging this portion of production. Coupled with this, c. 20% of United's net production is gas which is sold under a fixed contract that is relatively insensitive to oil-price changes.

 

  

INDEPENDENT AUDITORS' REPORT

TO THE MEMBERS OF UNITED OIL & GAS PLC

FOR THE YEAR ENDED 31 DECEMBER 2019

 

 

Opinion

We have audited the financial statements of United Oil & Gas Plc (the "Parent Company") and its subsidiaries (the "Group")  for the year ended 31 December 2019, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flow and related notes to the consolidated financial statements, the Parent Company Balance sheet, the Parent Company Statement of Changes In Equity and the related notes to the parent company financial statements. The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and International Financial Reporting Standards as adopted by the European Union (IFRSs). The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 'Reduced Disclosure Framework' (United Kingdom Generally Accepted Accounting Practice).

 

In our opinion:

 

•     the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2019 and of the Group's loss for the year then ended;

•     the Group financial statements have been properly prepared in accordance with IFRSs, as adopted by the European Union;

•     the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Material uncertainty related to going concern

We draw attention to the Going Concern section of the Principal Accounting Policies of the Group financial statements concerning the Group's and Company's ability to continue as a going concern. The Group incurred an operating loss of $2.1m during the year ended 31 December 2019 (2018: $1.1m). The Group is faced with a lower oil price environment along with the Covid-19 pandemic. Management have considered a number of scenarios including a downside case where further receipts from the Crown disposal are not received within the forecast period, and in the absence of potential mitigating actions, if realised would place doubt on the ability to fund the business for 12 months from the current cash reserves and projected oil and gas revenues following the acquisition of Rockhopper Egypt Pty Limited ('Rockhopper Egypt'). Some mitigating actions have been considered and include further divestment of the portfolio, restructuring of debt arrangements and further equity raises. These conditions, along with other matters discussed in the Principal Accounting Policies indicate the existence of a material uncertainty which may cast significant doubt about the Group's and Company's ability to continue as a going concern. The financial statements do not include the adjustments (such as impairment of assets) that would result if the Group and Company were unable to continue as a going concern.

 

Our opinion is not modified in respect of this matter.

 

The risk

Due to the nature of the industry and the significant amount of capital needed in order to fund cash calls and operating costs, there are risks surrounding the going concern assumption. Whilst post year end, the Group began to generate revenues following the acquisition of Rockhopper Egypt, the current low oil price impacts cash flow at least in the short term. Following the acquisition the Group also has significant monthly commitments in respect of the repayment of the BP Oil International Limited loan facility. This facility is underpinned by a hedging instrument which reduces the monthly settlements when the Brent oil price falls. Furthermore, the current market conditions, including the global Covid-19 pandemic and suppressed oil price  will have a direct impact on the Group's ability to generate profits. Whilst a further instalment of $2.85m is expected in relation to the Crown disposal later this year it remains contingent on the submission and approval of Hibiscus's field development plan.

 

Given the above factors, we consider going concern to be a significant audit risk area.

 

The directors' conclusion of the risks and circumstances described in the Going Concern section of the Principal Accounting Policies of the Group financial statements represent a material uncertainty over the ability of the Group and Company to continue as a going concern for a period of at least a year from the date of approval of the financial statements.  However, clear and full disclosure of the facts and the directors' rationale for the use of the going concern basis of preparation, including that there is a related material uncertainty, is a key financial statement disclosure and so was the focus of our audit in this area. Auditing standards require that to be reported as a key audit matter.

 

How our audit addressed the key audit matter

Our audit procedures included:

 

·    Assessing the transparency and the completeness and accuracy of the matters covered in the going concern disclosure by evaluating management's cash flow projections for the next 12 months and the underlying assumptions.

·    We obtained budgets and cash flow forecasts, reviewed the methodology behind these, ensured arithmetically correct and challenged the assumptions.

·    We obtained post year end results and compared these to budget to ensure budgeting is reasonable and results are in line with expectations.

·    We completed sensitivity analysis on the budgets provided to assess the change in revenue or costs that would need to occur to push the Group into a cash negative position.

·    We discussed plans for the Group going forward with management, ensuring these had been incorporated into the budgeting and would not have an impact on the going concern status of the Group.

 

Emphasis of matter - Valuation of the Walton Morant license in Jamaica

 

We draw attention to principal accounting policies in the financial statements which describes management's review and the key assumptions used in the assessment of impairment of the Group's exploration assets. In respect of the Walton Morant license in Jamaica in which the Group have a 20% interest and have capitalised $2,764,170. Tullow Jamaica Limited have made the decision to relinquish the licence and withdraw as operator by 31 July 2020. Although the licence ends in 2024, a 'drill or drop decision' currently needs to be made by 31 July 2020. UOG Jamaica Limited have written to the Jamaican authorities expressing their interest in continuing the current phase of exploration beyond this period and the Board are confident that this will be approved. However, due to the uncertainty in respect of the current exploration phase there is an indication of possible future impairment should the extension of the exploration period not be granted. The financial statements do not include the asset impairment adjustments that would result if the Group does not obtain the required approvals to continue with the license and to extend the current exploration phase.

 

Our opinion is not modified in respect of this matter.

 

Emphasis of matter - Consideration relating to the Crown disposal

 

We draw attention to note 3 of the financial statements which describes management's review and the key assumptions used when assessing the appropriate value of the consideration to be received in respect of the Crown disposal. The next instalment of $3m is dependent on field development plan approval by the Oil & Gas Authority in the UK. We understand that Anasuria Hibiscus UK Limited (Hibiscus) is still progressing with both the Sunflower and Marigold oil fields in the UK of which the Crown discovery is a key part. The Board remain confident that Hibiscus are still pressing ahead with the field development plan and are therefore expecting to receive the second instalment of $2.85m by the 31 December 2020. As at the year-end receipt of these funds is therefore considered probable, therefore we are satisfied that this has been appropriately recognised in these financial statements. However there is an inherent uncertainty due to the fact that the receipt is reliant on Hibiscus submitting the field development plan and obtaining approval. The financial statements do not include the receivable impairment adjustment that would result if the required approvals are not obtained.

 

Our opinion is not modified in respect of this matter.

 

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Key audit matter

How the matter was addressed during the audit

 

Impairment of exploration and evaluation assets in the Group

 

The Group has capitalised costs in respect of the Group's licence interests in accordance with IFRS 6 'Exploration for and Evaluation of Mineral Resources' (IFRS 6). The Directors need to assess the exploration assets for indicators of impairment and where they exist to undertake a full review to assess the need for impairment charge.  This involves significant judgements and assumptions such as the timing and extent and probability of future cash flow. 

 

 

We therefore identified the impairment of exploration and evaluation assets as a key audit matter, which was one of the most significant assessed risks of material misstatement.

 

Our audit work included, but was not restricted to:

 

·    Obtaining and discussing each of the licences with the directors and evaluating their assessment in conjunction with the Competent Person's Reports available for each exploration project and reviewed available information to assess whether the licenses remain in good standing.

·    We discussed each of the licences with the directors and challenged their assessment in conjunction with the Competent Person's Reports available for each exploration project and reviewed available information to assess whether the licenses remain in good standing.

·    We reviewed the future plans of the projects in respect of funding, viability and development to assess whether there were any indicators of impairment.

·    Assessing the future plans of the projects in respect of funding, viability and development to assess whether there were any indicators of impairment.

 

Key observations

An emphasis of matter has been included above in respect of the Group's Walton Morant license in Jamaica due to the uncertainty in respect of the extension of the current exploration phase which ends on 31 July 2020.

 

We obtained evidence that all the licenses remain valid and are in good standing. No other indicators of impairment were identified in respect of the carrying values of exploration and evaluation assets at the year end.

 

Impairment of investments and loans due from subsidiary companies in the Parent Company

 

Under International Accounting Standard 36 'Impairment of Assets', companies are required to assess whether there is any indication that an asset may be impaired at each reporting date.

 

Management assessment involves significant judgements and assumptions such as the timing and extent and probability of future cash flow. 

 

The Parent Company has loans due from subsidiary companies of $6.5m (2018: $11.3m). The investments represent the primary balance on the Company balance sheet and there is a risk it could be impaired and that intragroup loans may not be recoverable as a result of the subsidiary companies incurring losses.

 

We therefore identified the impairment of loans due from subsidiary companies as a key audit matter in the Parent Company financial statements, which was one of the most significant assessed risks of material misstatement.

Our audit work included, but was not restricted to:

 

·    Reviewing the investments balances for indicators of impairment in accordance with IAS 36;

·    Assessing the appropriateness of the methodology applied by management in their assessment of the recoverable amount of intragroup loans by comparing it to the Group's accounting policy and IAS 36;

·    Assessing management's evaluation of the recoverable amounts of intragroup loans including review the impairment provisions and net asset values of components that have intercompany debt;

·    Checking that intragroup loans have been reconciled and confirming that there are no material differences.

 

 

 

Key observations

The majority of the investment balances correlate with the exploration assets held by that subsidiary and our impairment review was therefore linked to our assessment of indicators of impairment on the corresponding exploration licences. 

 

An impairment provision of $1.65m was recognised in the parent company following the impairment of the Colter licence at the year end. No further indications of impairment were identified.

 

Accounting and valuation of consideration relating to the Crown disposal in the Group

 

During the current year the Group disposed of its interest in the Crown discovery for total consideration of up to $5m to Hibiscus. A further instalment of $2.85m is expected to be received by 31 December 2020. The receipt is reliant on Hibiscus submitting the field development plan and obtaining approval. Therefore key judgements are required in order to conclude as to the appropriate value to recognise in the financial statements.

 

Our audit work included, but was not restricted to:

 

·    Obtaining and reviewing the sale purchase agreement with Hibiscus along with the terms and conditions therein.

·    In respect of the contingent consideration, we have considered management's assessment of the probability of receipt and the key assumptions.

·    We have considered the announcements made by Anasuria Hibiscus UK Limited to ensure consistency with management's assessment.

 

Key observations

As at the year-end the receipt of these funds is considered probable, however, an emphasis of matter has been discussed above in which we have included further observations due to the fact that there is inherent uncertainty due to the fact that the receipt is reliant on Hibiscus submitting the field development plan and obtaining approval.

 

 

 

 

 

 

Our application of materiality

 

The scope and focus of our audit was influenced by our assessment and application of materiality. We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the financial statements.

 

We define financial statement materiality as the magnitude by which misstatements, including omissions, could reasonably be expected to influence the economic decisions taken on the basis of the financial statements by reasonably knowledgeable users.

 

We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

 

Materiality Measure

Group

Parent

Overall materiality

We determined materiality for the financial statements to be:

$182,000 (2018: $214,000).

$146,000 (2018: $171,000).

How we determine it

Based on the main key indicator, being 2% of net assets of the Group.

 

2% of net assets of the Parent Company exceeded the Group materiality amount therefore this was capped at 80% of Group materiality.

 

Rationale for benchmarks applied

We believe the net assets are the most appropriate benchmark due to the size and stage of development of the Company and Group and due to the Group not yet generating any revenue.

Performance materiality

On the basis of our risk assessment, together with our assessment of the Group and Company's control environment, our judgement is that performance materiality for the financial statements should be 75% of materiality being:

$136,500 (2018: $160,500)

$109,500 (2018: $129,000)

Reporting threshold

 

We agreed with the Audit Committee that we would report to them all misstatements over 5% of Group and company materiality identified during the audit as set out below, as well as differences below that threshold that, in our view, warrant reporting on qualitative grounds.  We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

$9,000 (2018: $11,000)

$7,500 (2018: $8,500)

 

 

An overview of the scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements and assumptions in respect of the capitalisation or impairment of the costs attributable to the Group's exploration assets, such as allocations of time writing costs and where there were future events that are inherently uncertain.

 

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account an understanding of the structure of the Company and the Group, their activities, the accounting processes and controls, and the industry in which they operate. Our planned audit testing was directed accordingly and was focused on areas where we assessed there to be the highest risk of material misstatement.

 

Our Group audit scope includes all of the group companies. At the parent company level, we also tested the consolidation procedures. The audit team met and communicated regularly throughout the audit with the Finance Director in order to ensure we had a good knowledge of the business of the Group. During the audit we reassessed and re-evaluated audit risks and tailored our approach accordingly.

 

The audit testing included substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls and the management of specific risk.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant findings, including any significant deficiencies in internal control that we identify during the audit.

 

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditors' report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.

 

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

 

•     the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

•     the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

 

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

•     adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

•     the financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of directors' remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

 

 

 

 

Responsibilities of directors

As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

 

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.  Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities.This description forms part of our auditor's report.

 

Use of our report

This report is made solely to the Company's members, as a body, in accordance with part 3 of Chapter 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

 

 

 

 

Daniel Hutson (Senior Statutory Auditor)

For and on behalf of

UHY Hacker Young

Chartered Accountants

Statutory Auditor

 

Quadrant House

4 Thomas More Square

London E1W 1YW

 

28 May 2020

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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FR EAFSPADPEEAA

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